1. Go through the term sheet in Appendix 6.1. What is the purpose of each
clause? What risk is the venture capitalist protecting against?
2. What characteristics make a firm a strong candidate for venture capital?
3. What should an entrepreneur look for in a venture capitalist? Why might
the highest bid not be the best option?
It is now time to prepare New Tech’s invest ment proposal. Elizabeth Pratt,
the company’s in-house accountant, is pleased by the prospect of preparing
the first draft. She knows that it will be a key tool in interesting investors in
New Tech.
Elizabeth is well prepared. She has worked with others on the manage-
ment team to document their financial assumptions, determine their finan-
cial requirements, and build a deal that will benefit investors and New Tech.
She has prepared New Tech’s 5-year financial projections (see Appendix in
chapter 5) for inclusion in the proposal.
She has met with New Tech’s lawyer, Tony Lee of Smith & Smith, to
discuss which security act provisions the company may be subject to, the
prospectus exemptions the company may qualify under, as well as other
considerations regarding the presentation/format of the document.
To put together an effective investment propo sal, Elizabeth will have to
fulfill these tasks:
. Think about what investors want to know
. Present key informat ion, concisely and compellingly, on
. New Tech, its market and competitors
. The terms of the deal New Tech is offering
. Key financial data and forecasts
. The management team
. Prepare an executive summary that will capture the invest ors’ interest
She has organized the executive summary into three parts:
. The Investment Opportunity
. New Tech’s Strat egy
Venture Capital 217

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